Condor Options

While we’ve been communicating more actively than usual with subscribers, things have been somewhat quieter here on the free part of the site.  The reason?  We don’t expect historical and statistical studies to be nearly as helpful in a market environment like this one.  And since we don’t have any unique insight into the likelihood of various political and economic events coming to pass, we figure your RSS reader or pony express boy or whatever is already loaded with enough punditry.

• As we mentioned to subscribers this morning: “A lot of commentators and blogs and journalists are citing historical and statistical data points in both directions (we bounce here; we fall further).  Our view is that historical and statistical studies of market action are most useful for deriving an edge from a large data set of instances conforming to some norm of price behavior.  But that means that purely event-driven markets will not be as amenable to such studies.  No one likes to say “I don’t know,” but when the market is watching the politicians for cues, and no one knows what the politicians will do, it simply doesn’t make sense to try to forecast price action.  That’s why we trade volatility ranges rather than price action alone.”
• That point about the size of data sets can’t be emphasized enough.  Every Tom, Dick, and Harry with a VIX chart will tell you how special this environment is, and they’re right.  But when n=5, a survey of reactions to n just isn’t going to be that instructive.  We can’t infer some future outcome based on what happened after various crises a handful of times in the past.  And we would hazard the suggestion, after all, that the shape and magnitude of the various post-crash recoveries had more to do with the “facts on the ground” than with any mean reversion or fibonacci levels or retracements in and of themselves.
• Remember, too, that this crisis is rooted in the credit markets, not in equities or commodities.  For traders, that means that the action in equities is largely reactive, or at the very least, is probably less informative than usual.  Exhibit A: a Dow down 700 one day and up 500 the next just gives you whiplash, while a TED spread consistently hovering above 3% puts the proper fear of God into all those who have ears to hear.  This crisis isn’t over until the wheels of capitalism get good and greasy again.

Don’t miss Shouts & Murmurs this week on why the author is too big to fail.  Last week, George Saunders re-confirmed his status as one of the greatest writers of our time.

[Image via The Onion]